Bouncing a check is embarrassing and expensive. You hate to see "insufficient funds" on a check or hear that an automatic teller machine debit was refused or automatically cost you extra money. A returned check or ATM debit can hurt your credit standing, affect your relationship with the business or person who got the bad payment and cost you money. You may get hit with fees for bounced checks or missed payments. Financial institutions will usually charge you for insufficient funds items and sometimes hit you with expensive overdraft loans.
Ask about overdraft policies when you open your checking account or apply for a debit card. Check out interest rates for any automatic overdraft loan; they can be 15 percent or more. Find out what overdraft fees are; one survey found the average automatic teller overdraft was $20, but the average fee was $34. That will pile up debt in a hurry.
Read up on your bank's rules on overdrafts. Maybe you can qualify for free overdraft loan protection by putting money in other accounts in the same institution. Moving a savings account from a credit union to your checking bank may get overdraft fees and interest waived and not cost you any interest money.
Try setting up a special small line of credit, which usually will be cheaper, instead of relying on an overdraft loan. Maybe you get arrange an automatic transfer from a savings account or billing to a credit card to stop an overdraft loan. You can "opt out" of an automatic loan on debit card overdrafts but this can cause your debit card to be refused if you have an overcharge.
Keep track of your balances so you know how much money you've got. It's easy with online banking and you probably can use your cellphone. Ask your banker if you can be notified if your checking balance drops below a certain level. Switch banks if you don't like the answers at your bank -- banks want your business and may give you some incentives to change.
- Center for Responsible Lending: Overdraft Loans
- Gardiner Federal Credit Union: Overdraft Protection
- Bad Credit Loan Center: Protect Yourself From Loan Overdrafts
- Members Heritage Federal Credit Union: Overdraft Protection Loan
- Consumer Federation of America: Overdraft Loans
- Consumers Union: New Overdraft Rules Offer Protection to Consumers
- New York City Department of Consumer Affairs: Five Loans to Avoid
- Total Bankruptcy: Avoid Abusive Overdraft Loans
- Business Dictionary: Overdraft
- American Bankers Association: Eight Ways to Avoid Overdraft Fees
- American Bankers Association: Half of Bank Customers Choose Overdraft Protection
- American Bankers Association: 80 Percent of Consumers Paid No Overdraft Fees in Past Year